On big boxes & hurricanes

I have moved around the US enough to have sampled a variety of natural disasters. I would rather deal with blizzards than hurricanes and hurricanes than earthquakes. Hurricanes are still awful. I have spent hours driving around trying to find the last available D battery in town. NPR‘s story on how big-box stores such as Home Depot and Walmart are preparing as Hurricane Irene heads toward the East Coast consequently struck a chord (Big-Box Stores’ Hurricane Prep Starts Early, Aug 26).

This is an interesting supply chain management challenge. Clearly part of this plays to traditional strengths of large retailers (particularly Walmart). Walmart is very good at understanding consumer demand and how, say, changes of season affect the sales of different products. It is not at all surprising that they know how much demand for batteries and Pop-Tarts will increase.

The operational part that strikes me is that some of these firms essentially added extra inventory to their distribution systems at the start of hurricane season and just sit on it.

At times like this, [ Home Depot’s] Command Center looks much like NASA Mission Control during a shuttle launch, says Russ Householder, the company’s emergency-response captain.

“We’ve got all the key news agencies on the big screens up front,” he says. “We’re also monitoring our store sales so we can better be in tune to what’s happening in our stores, and we’re also connected live one-on-one with district managers in the impacted areas.”

Those district managers have been focusing on stocking a short list of items, Householder says, including generators, chain saws, water and tarps.

Householder says those supplies are flowing to stores because of a process that began months ago, at the beginning of hurricane season.

“We take storm product, both pre- and post-strike product, we stage those in containers and we have them in our distribution centers, really ready for a driver to pull up and pick up and take them to our stores,” he says.

It is an intriguing — although fairly simple — trade off. They don’t know how bad hurricane season will be and just where storms will strike. So there is risk in stockpiling chainsaws and tarps. On the other hand, if you have reasonably favorable payment terms from your suppliers, it is just not that expensive to hold the supplies for four months while the pay off in customer service and goodwill for having what is needed at the right time is huge.